Bank of England aims for growth with lighter capital reforms for UK lenders

BoE revises approach to mortgage and SME lendingNew rules delayed until January 1, 2026 to help implementationReeves said the reforms would help banks support growth and investment.

LONDON, Sept 12 (Reuters) – The Bank of England is set to introduce revised new rules on how much capital British banks must set aside to weather future crises while protecting borrowers from shocks, supporting growth and not harming global commercial interests.

The central bank's regulatory arm said on Thursday it would make “significant revisions” to some previously proposed Basel bank capital reforms, based on consultation and evidence, highlighting “excessive conservatism” and excessive costs or implementation challenges.

The changes described will take effect on January 1, 2026, rather than July 1, 2025.

Financial regulators enacted Basel III rules in 2007-2009 when the global banking crisis forced taxpayers to bail out many undercapitalized banks.

Most of the Basel package is already implemented by major lending institutions, with some elements still to be implemented in national rule sets.

“In terms of capital impact, we think it will have a very small impact on the average UK company's requirements across the board,” Phil Evans, prudential policy director, said in a speech.

The Bank of England plans to lower capital requirements for small business lending and infrastructure projects.

It also plans to streamline banks' approach to home mortgage lending, primarily by simplifying how they value residential property.

The proposed rules would increase the amount of capital banks would have to set aside for such activities, potentially limiting the supply of affordable credit to borrowers, investors and homeowners, senior industry sources worry.

The Bank of England estimates that the proposed new changes, which will be phased in over four years, would have an overall impact of less than 1% on major banks’ Tier 1 capital requirements.

“This is smaller than our consultation proposal, and certainly very small compared to the roughly 300% increase that would have been required in the decade from the global financial crisis to COVID. It is smaller than other major jurisdictions,” Evans added.

The FTSE 350 banks index (.FTNM301010) was up 1.5% at 1056 GMT, the large-cap index (.FTSE) was up 0.8% and HSBC (HSBA.L) was up 2.2%-0.2%. REEVES MEETING INDUSTRY

Chancellor of the Exchequer Rachel Reeves welcomed the reforms, saying they would provide certainty to the banking sector “in funding Britain's investment and growth”.

Reeves met with chief executives from across the banking industry, along with Bank of England Governor Andrew Bailey, to discuss change.

“Today marks the end of a long journey since the financial crisis of 2008,” Reeves said in a statement.

“British banks play a vital role in helping businesses grow, building infrastructure and supporting people's finances.”

A spokeswoman for NatWest, the UK's biggest small business lender, said it would continue to work with the government to “improve the level of certainty around the details”.

Anindya Ghosh Chowdhury, director of Forvis Mazars' banking risk and regulatory consulting team, said the revised package would bring capital requirements for small business lending in the UK in line with other European countries, but UK banks still faced significant differences in how they handled mortgage lending.

Two days after news broke of the Bank of England’s revised approach to implementing Basel rules, the Federal Reserve’s chief regulator outlined plans to drastically reduce capital requirements for big U.S. banks in the wake of intense Wall Street lobbying against Basel rules.

Michael Barr, the Federal Reserve's vice chairman for supervision, said the scaled-back plan would increase capital requirements for banks with more than $100 billion in assets by 9% from the original 19%.

But industry analysts say building up such huge amounts of additional capital is unnecessary and that the reforms will leave banks with less capital to lend or use to support the healthy functioning of global markets.

The EU has already delayed key parts of its rules on bank ledgers until January 2026, but is pushing for most of the remaining rules to be introduced by January 2025.

Steven Hall, a partner in KPMG UK’s risk and regulatory advisory practice, said there was a “very real possibility” that the requirements would need to be further updated to reflect other risks, such as cyber and climate risks.

“It has taken nearly 15 years for these reforms to happen and there is general concern across the industry about how long it has taken to get to this point,” he said.

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Additional reporting by Amanda Cooper, David Miliken and Lawrence White; Editing by Alison Williams and Jane Merriman

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